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CA Intermediate · Advanced Accounting · AS 27 Financial Reporting of Interests in Joint Ventures

Pranav Ltd and Qadir Ltd jointly control a pipeline. Pranav owns 60% of the pipeline, which cost Rs 10,00,00,000 in total, and takes 60% of the output. Jointly incurred operating costs for the year were Rs 1,50,00,000 shared in the ratio of output. Pranav also separately paid Rs 20,00,000 as interest on its own loan used to finance its share of the pipeline. Pranav sold its 60% output share for Rs 5,00,00,000. In Pranav's own financial statements under AS 27, what pre-tax profit before depreciation arises from this joint venture?

The profit before depreciation is Rs 3,90,00,000. For jointly controlled assets, the venturer recognises its share of jointly incurred expenses (60% of Rs 1,50,00,000 = Rs 90,00,000) and expenses it incurs itself (Rs 20,00,000 interest), and deducts them from its revenue of Rs 5,00,00,000.

  1. ARs 3,90,00,000
  2. BRs 3,70,00,000Correct
  3. CRs 3,60,00,000
  4. DRs 2,70,00,000

Explanation

This is jointly controlled assets. Pranav records its share of costs: 60% x 1,50,00,000 = 90,00,000, plus its own interest of 20,00,000, totalling 1,10,00,000. Profit = 5,00,00,000 - 1,10,00,000 = 3,90,00,000, before depreciation. Check: 5,00,00,000 - 90,00,000 = 4,10,00,000, less 20,00,000 = 3,90,00,000. Recomputing, the correct figure is Rs 3,90,00,000 and option 1 matches.

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